Yes, we can eradicate extreme poverty, but do we want to....

The global incidence of extreme poverty rate has been cut in half in the last 20 years. The world has never been in a better position to virtually eradicate extreme poverty, says the world renowned economist Martin Ravallion. We do not only have the means, we also know how to do it.

While many debates continue, Ravallion points out that we have made much progress in our thinking about policies for fighting poverty. Over the last 200 years, poverty has shifted from being seen as a social good to a social bad. In the 16th century, poverty was seen as instrumentally good. If people were poor, they would be forced to work to keep hunger at bay. Higher wages, as well as education, would, it was argued, discourage people from working. This would be detrimental to the state’s trade surplus. As society changed, and economic thinking advanced, so did prevailing views on poverty. By the late 18th century, as political awareness rose, people started to demand change. Poverty was no longer seen as inevitable, it was seen as a product of social organization. There was a new awareness of the scope for what the government could do for the poor. In the late 19th century, it came to be recognized that poverty could and should be eliminated. Today, there is broad agreement on this goal and the state’s role. But what kind of antipoverty policies can eradicate extreme poverty?

Protection and promotion policiesMartin Ravallion, who holds the inaugural Edmond D. Villani Chair of Economics at Georgetown University and was the former Director of the World Bank’s research department, has researched extensively on poverty and on policies for fighting poverty. Ravallion is well-known for his work on measuring global poverty and for his work linking economic policies to the welfare of poor people, including the evaluation of anti-poverty programs. He has advised numerous governments and international agencies and written extensively on these topics. Ravallion recently visited CMI to take part in the 12th Nordic Conference in Development Economics.

Ravallion argues that seeing freedom from poverty as an individual right is not sufficient.

-Governments can set legal rights but their enforceability is another matter. India, for example, has implemented a national “right-to-work” scheme to guarantee employment in unskilled manual labor in rural areas at statutory minimum wages. This could bring many benefits to poor people, but so far the implementation on the ground of the right-to-work idea in India has been highly uneven, with a great many people not getting the work they wanted. The majority of agricultural workers do not even get the minimum wage.

Antipoverty policies must find the best combination of protection and promotion policies. Protection policies provide essential security net that allows people to maintain even a low standard of living in the face of many risks in their lives. Promotion policies make it possible for people to break out of the poverty trap, to get out of poverty for good. Promotion policies like education, health care, microfinance and poor-area development, with complementary public information campaigns, are potentially life-changing interventions.

The country that cut poverty the most the last 30 years is China, and China is a testimony to the efficiency of promotional policies, argues Ravallion.

Alleviating poverty the cheapest way possible?Despite widespread poverty in many countries, we have made impressive progress against extreme poverty. China’s success has been undeniable, and naturally carries a large weight in the overall numbers. However, it is not just a story about one country. The trend rate of reduction in the “$ 1.25 a day” poverty rate for the developing world outside China has increased from 0.4 percentage points per year to 1.0 percentage points after 2000.

-Paradoxically, attention to poverty has increased as the actual number of poor has decreased. Poverty is easier to deal with when the levels are not too high, the interventions needed are not too costly for the non-poor, hence they are more feasible. High poverty rates are a Catch 22. Poverty impedes the overall growth process. This makes it harder to finance social programmes and implement pro-poor reforms, even in democracies, says Ravallion.

-Calculations suggest that very poor developing countries have little domestic capacity for redistribution as a means of eliminating poverty. Redistribution would imply tax burdens on the non-poor which would not be accepted, says Ravallion. Economic growth will undoubtedly do the “heavy-lifting” against extreme poverty, as it has in the past.

However, we have also learnt that the right social policies can be an important complement to policies for promoting economic growth. In the absence of effective promotional policies, poverty itself constrains future growth and poverty reduction.

Today, there is an increasing call for effectiveness and targeted interventions.

-This emphasis on targeting is not new. In 19th century England, efforts to reduce the cost of Poor Laws led to calls for finer targeting. The country’s workhouse-policy was seen as “self-targeting”—they were deliberately punitive and stigmatizing places. There was a reaction against this approach. Ravallion argues that, while there is a role for targeting, we have to remember that targeting is not the objective, rather it is reducing poverty. There can sometimes be too much targeting from that point of view.

Social policy is frequently constrained by administrative capabilities and limited information. According to Ravallion, self-targeting interventions and indicator-based targeting tend to be popular in developing countries with weak administrative capabilities. The opposite of “perfect targeting” is poll transfers, which is a fixed cash transfer to every person, irrespective of their wealth or poverty. This could well dominate other (more targeted) options, though financing is key. In practice, the bulk of direct interventions falls somewhere in-between these extremes.

- Interventions like schooling for children from poor families are expanding. Broad-based education is seen as an important factor explaining East Asia’s growth, and several Latin-American countries also have success stories from providing poor families incentives for sending their children to school. According to figures from the World Bank, more than 30 developing countries now operate with some form of “conditional cash transfer”-programmes for poor families, and the number is increasing. These are promotional interventions designed with a clear objective; to break the poverty trap on a permanent basis.

- Yes, we can eradicate extreme poverty, says Ravallion. The 2030 goal of a 3% poverty rate, voiced by the World Bank President Jim Yong Kim, is attainable if we make a real effort. It will be more difficult to get rid of the last few %, warns Ravallion, but the world has never been in a better position to virtually eradicate extreme poverty in the near future. We have the means, and we have also learned a lot about how to do it. In the end, concludes Ravallion, it is a matter of will.